Unemployment compensation exclusion corrections led to 12 million refunds

By Martha Waggoner

The IRS said Friday in a news release that it has completed the final corrections for taxpayers who had overpaid their taxes due to the inclusion of an unemployment compensation exclusion in the American Rescue Plan Act of 2021 (ARPA), P.L. 117-2, after the taxpayers had filed their tax returns.

ARPA, which was enacted in March 2021, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing jointly). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

The IRS, to ease the burden on taxpayers, reviewed the Forms 1040, U.S. Individual Income Tax Return, and 1040-SR, U.S. Tax Return for Seniors, filed before ARPA was enacted to identify taxpayers who were eligible for the correction. It then determined the correct taxable amount of unemployment compensation and tax.

About 14 million returns were corrected, with nearly 12 million refunds — totaling $14.8 billion — issued. The average refund was $1,232.

In some cases, the exclusion only resulted in a reduction in a taxpayer's adjusted gross income. The IRS mailed a letter to these taxpayers to inform them of the corrections. Taxpayers should keep that letter with their tax records.

The IRS says it may not have found all those eligible for the unemployment compensation exclusion. Taxpayers eligible for the exclusion whose account was not corrected by the IRS may need to file an amended 2020 tax return to claim the exclusion and any applicable nonrefundable or refundable credits affected by the exclusion, the agency said. Those who already filed an amended return to claim the exclusion should not file again.

For more information, including eligibility requirements, taxpayers should read the 2020 Unemployment Compensation Exclusion FAQs on IRS.gov.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.